As I mentioned yesterday, the heads of the four major central banks were speaking at an ECB forum and while we had not heard much when I wrote then, it would have been too much to ask to not hear anything at all. The essence of their commentary was that they saved the world with their policies and that their critics need to understand that without their actions, things would have been much worse. As there was no Q&A, there was no chance to ask about issues like the bond bubble or the rise in inequality globally leading to things like Brexit, the election of President Trump and the repudiation of the entire French party system along with the rise of Germany’s AfD party. Notably, all four of them are likely to be leaving their seats within two years, and I’m sure they will be keen to go. After all, when the next markets correction comes, especially if it is combined with the inevitable recession, these four don’t want to be in the spotlight at all.

The other notable comments yesterday came from Chicago Fed President Charles Evans, who once again focused on the idea that the Fed’s target inflation rate of 2.0% was not a ceiling, but a symmetrical target. And more importantly, that he was concerned that the market was misinterpreting the Fed’s goals and thus mispricing assets. Once again I will ask the question, why is it that central bankers are so keen to see prices rise faster than 1.5%, or 1.0% or whatever the low inflation number is in a particular country. I am becoming of the opinion that their rationale is when inflation is high, they know how to respond to address things and nobody calls their actions into question. But when inflation is low, doing nothing is hard, because their very existence can be called into question. After all, if inflation is low and stable, why have a central bank at all? Clearly, that last comment is tongue-in-cheek, but may have more truth than you know. At any rate, Evans is a known dove and the fact that he is talking down prospects for rate hikes next year is hardly new news. Ultimately, I don’t imagine his comments are actual market movers given his known bias.

Meanwhile, risk is being called into question this morning as evidenced by the universal decline in global equity prices today following similar price action yesterday. Treasury yields are falling along with oil prices and gold is rising but the FX market is much less clear in its behavior. Under the heading of this makes sense, the yen is the best performing currency of the evening, rising 0.65% despite a slightly softer GDP outturn in Q3 than anticipated. In addition, the Swiss franc has performed reasonably well, rising 0.3%. As to the euro, it is up a further 0.4% this morning after a more than 1.1% rally yesterday. So far, so good. But NZD is the second best performer in the G10 today, rising 0.41% in what is counterintuitive to the general risk sentiment. It seems that yesterday’s sharp rally in the AUDNZD cross was unwound overnight, this time benefitting the NZD, after weaker than expected wage data was released from Australia. As to the rest of the G10, they are all falling with NOK down a substantial 0.75% on the combination of risk sentiment and declining oil prices.

The confusion really stems, though, from the emerging market bloc, where almost all currencies have rallied vs. the dollar. This is most certainly not risk-off behavior. If we go down the list, KRW rallied 0.5% allegedly on optimism that President Trump is going to try using carrots rather than sticks with the North Koreans, thus reducing tensions. RON has rallied more than 0.6% on comments of a lower budget deficit and expectations of future rate hikes being accelerated. MYR rallied on a better than expected GDP print, while INR seemed to benefit from a theme of broad dollar weakness. And that is the conundrum. If risk is being jettisoned, which certainly seems to be the case in the equity and commodity markets, and government bond yields are falling, how is it that this bloc of currencies is rallying? My gut tells me that if today’s US equity markets indicate a more significant risk-off stance in markets, then tomorrow, these currencies will reverse all of last night’s gains and then some.

Turning to the economic data, yesterday’s PPI print surprised on the high side, with the Y/Y number at 2.8%. Of course, very few traders or investors pay attention to that number. However, this morning brings CPI (exp 2.4%, 2.2% -ex food & energy), which if it follows suit and prints higher will arguably bring a much greater reaction by markets. In fact, it would effectively repudiate Evans’ concerns expressed above. We also see Retail Sales (exp 0.0%, 0.2% -ex autos), which in my mind will not have nearly the impact of the inflation data today.

Generally speaking, the dollar is under pressure today, which remains at odds with the performance in both equities and Treasuries. If this is truly the start of the long awaited equity correction, I expect that the dollar will regain some adherents quickly. So to me, all eyes are on the Dow today in order to determine what will happen to the dollar.